Concerns about how the tax profession is regulated are justified says Ray McCann but, given the complex nature of tax, he feels that a new regulatory body is not the answer.
Founder of the Tax Advice Network, Mark Lee, is right to have concerns about how the tax profession should be regulated. In recent years the reputation of tax advisers has been damaged, with those in the existing regulated sector bearing the brunt of public disdain.
It is essential to focus on the actual problem that whatever proposed solution is designed to solve. And it is here that it gets tricky – is it only unregulated advisers, poor-quality advisers, advisers who are not members of a professional body, advisers who spend all day drafting wheezy tax schemes? In the end, it may be all of these but focusing on those who are not members of a professional body is perhaps the best place to start.
It would be wrong to suggest that they alone are the problem, but HMRC say that a huge proportion of the advisers they have problems with are not professionally qualified. How many of those outside of the professional bodies fully comply with anti-money laundering (AML) rules? How many even know that their AML obligations are not the same as members of the CIOT, for example? How many regularly do continuing professional development (CPD) or use an indemnity insurance provider? HMRC suggested not so long ago to Parliament that taxpayers often find an adviser in the pub. Who did they have in mind? Sadly all of us!
Tax scandals
The demand for some form of regulation often follows the latest tax scandal (maybe Zahawi received poor advice!) and while this is understandable, knee-jerk reactions usually result in poor policy choices and the last thing we need is a solution that creates more problems than it solves. Various ideas have been suggested by the professional bodies but inevitably, artificial barriers are put in the way, preventing any progress.
How tax advice is defined and what would be the effect on the cost to the consumer are two of the most common issues raised in response to any suggestion intended to improve the status quo. Even the recent HMRC consultation on regulating the tax profession that looked settled on making indemnity insurance mandatory was abandoned by the government with nothing in its place.
No new regulator
Coming back to Lee’s point, I don’t believe a newly created regulator is the answer. It’s not obvious to me that the Solicitors Regulation Authority (SRA) has reduced the small number of cases where solicitors do very bad things. And that is the point – apart from the aberration that has been the tax scheme scandal of the past 15 or so years, most tax advisers do a good job year after year and without them the government would have to spend a great deal more on making the tax system function effectively.
There is already a regulator for professional bodies, the Office for Professional Body Anti-money Laundering Supervision (OPBAS). This has substantially increased costs but not, I suspect, increased confidence in the supervision of the anti-money laundering rules since it has no remit for those advisers who are not members of a professional body. A new regulatory body with responsibility for quality and ethics would not lead to increased public confidence – look at the waves of criticism existing regulators receive. But it would create very significant issues that would quickly impact on the quality and cost of tax advice, possibly forcing many solo advisers to do something else for a living. It might start with a remit that would include only those outside of professional bodies, but it would be unlikely to stay there.
It’s complicated
As I see it, the only way we can make any progress is to be firmly focused on reality. Tax is complicated – even tax for those who would not describe themselves as wealthy can be complicated and over the past several years the many changes to the administration of the tax system have made the task more complex still. Who outside of HMRC thinks that the earlier capital gains tax deadlines, the trust register, Making Tax Digital, and numerous other changes ease anyone’s burden? (And I support the move to a more digital tax system!)
The other reality is that experienced tax advisers are not cheap and good-quality tax advice will always be beyond the reach of some. Many advisers charge (or are paid) less than the intrinsic value of what they do and too often HMRC shows little idea of what advisers are contracted to do and what they can, even with the best will in the world, be expected to do. It’s not the adviser’s responsibility to ensure their client pays on time or to spend hours chasing the client to do so. And how many advisers, despite endlessly chasing the client, find themselves working late into the night in the run-up to the 31 January deadline?
Regulated profession
I mentioned above the “regulated profession”. In my mind, this consists of members of the professional bodies and the employees of firms that are members of professional bodies. If the profession is to be regulated, and I believe it should, the existing professional body approach should be the starting block. We need a strategy that moves towards a point where only professionally qualified individuals can give tax advice. Even starting now that would probably take ten years or more. It is unrealistic to expect professional bodies to simply throw open their doors or for those advisers with many years of experience to undertake two or more years of study to become professionally qualified late in their careers. But the professional body framework could form the basis of a new approach, starting with an effective complaints system like the Taxation Disciplinary Board, and the government could look again at indemnity insurance. In that way those advisers outside of the professional bodies would have an incentive to maintain high standards, keep up to date and not get involved in dodgy tax schemes.
Effectively regulating the tax profession is hard, and it is hard because tax is hard. What is “tax avoidance”? Where is the line between tax avoidance and “tax planning”? What is “trade”? Even after so many years, “basic” questions of this type defy a black-and-white answer. Unless the government is prepared to step up, nothing will change.